Tuesday, September 27, 2011

Because of all the doom and gloom about the U.S. newsstand system (you know it’s bad when an industry consultant’s blog is called From the Foredeck of the Titanic), Dead Tree Edition decided to launch an in-depth investigation. Which means I ventured out to the magazine sections of three stores.

I was trying to figure out why, as MediaPost reported recently, the combined retail sales of 68 major magazines are barely half of what they were a decade ago. It wasn’t hard to spot one of the culprits.

At first, all seemed OK when I eyed the prominently placed magazine section in a big discount store. There were lots of familiar titles – National Geographic, TIME, Us, Readers Digest, and Better Homes & Gardens. But a closer look showed they were imposters.

The well-known magazine logos weren’t on magazines at all but on mooks – AKA bookazines, SIPs (single interest publications), one-shots, or specials. By whatever name you call them, they are sold in the magazine section of stores but have no specific issue date, can’t be obtained as part of a subscription, and tend to hone in on a single topic that’s in keeping with the magazine’s brand --like Christmas Cooking from Better Homes & Gardens, Us: Stars of 2011, or TIME’s Beyond 9/11: Portraits of Resilience.

Mook sales are usually excluded from the industry statistics reported by the trade press.

The intruders mostly have the same characteristics – little or no advertising, glossy high-quality paper, perfect binding, relatively high cover prices, and on-sale periods of about three months instead of the one month or less typical of real magazines.

The Zombies
Much of the retail space once dedicated to prominent weekly and monthly magazines has been given over instead to these magazine spinoffs. Also taking oxygen away from the sales of real magazines are SIPs published by such non-magazine brands as Pillsbury, the Mayo Clinic, USA Today -- and Life.

Three times Time Inc. has killed Life magazine, only to resurrect it for such bookazines as 100 Photographs That Changed the World and El Papa de Juan Pablo. No wonder they call if Life: This zombie just won’t stay dead!

Also enjoying living-dead status is U.S. News & World Report, which closed down its only print magazine late last year but in one bookstore had four different mooks – Best Colleges, Best Graduate Schools, Best Hospitals, and Amazing Animals. (Wait, shouldn’t that last one be Best Animals? Or maybe Best Veterinary Hospitals? How about Best Obedience Schools?)

The "Best" books all deviate from the usual bookazine model by running ads -- lots of ads in the case of Best Hospitals, way more than the real magazine used to have. My contact at U.S. News says the new 344-page Best Colleges book is the company’s largest “issue” in at least two decades, and maybe ever. It sounds as if the magazine business is looking pretty good for U.S. News now that it’s out of the magazine business.

One-shots used to be the province of enthusiast magazines testing out ideas for a new title: Sportscar Convertible is doing well, so let’s try a SIP called Corvette Convertible. If the response is good enough, we’ll solicit subscriptions and start publishing bimonthly.

But that door is closed. The beleaguered newsstand distribution system no longer has the patience to give untested niche titles a shot.

Favorable Economics
Bookazines from well-respected brands are another matter, and the big publishers are happy to play along even if that diverts attention from their periodical issues. Consider the economics, as exemplified by Better Homes & Gardens: The 232-page October issue is priced at $3.99, but its 144-page SIP siblings – I saw three in one store – sell for $9.99 each.

Here’s my analysis: As consumers have gained greater ability to find exactly the information they want or need, the traditional mass-market magazine with its mishmash of loosely related articles is looking increasingly irrelevant to them. (The October issue of National Geographic has articles on the teen brain, surviving cancer, whale sharks, and Ansel Adams. Who's the target audience?)

But in an age of link-baiting and belly-fat ads, consumers still trust respected magazine brands. When those brands offer content -- whether a mook or an app -- that’s laser-targeted to their needs or interests, suddenly the wallets come out. (A National Geo mook called Wildlife: The Greatest Photographs? Let me see that.)

I was one of those who snickered last year when the Magazine Publishers of America changed its name to The Association of Magazine Media. Now the name is actually starting to make sense.

Just don’t ask me to define “magazine media.”

If you actually made it to the end of this article, you might enjoy suffering through these other Dead Tree Edition analyses of the U.S. magazine industry:

Thursday, September 22, 2011

Have you ever stood in a long, slow-moving line at a post office and wondered why only one employee was helping customers?

The problem is the way the traditional U.S. post office is structured, with delivery and retail operations in the same building, according to an Inspector General’s report released today. It’s high time to separate those functions in many urban and suburban areas, says the report, entitled “Retail and Delivery: Decoupling Could Improve Service and Lower Costs.”

“Unlike most retail stores in the private sector where employees are called up from the back office when lines are long to serve the customer, the focus in Postal Service shared facilities is the exact opposite. A clerk’s first priority is often back room operational support activities — even if that means a retail customer waits longer in line.”

Managers of a typical post office “primarily focus on delivery performance and cost control over providing retail service or promoting revenue generation. In fact, their performance evaluations often guide them to focus on meeting delivery cost and service goals to the exclusion of retail service or revenue generation goals. “

“There is no inherent business need to have retail co-located with delivery. If reasonably increased workforce flexibility is allowed (by allowing some retail clerks to work a half day, for example), the business need for coupling could effectively disappear. The recently approved contract with the American Postal Workers Union (APWU) introduced new scheduling flexibility for career employees that might support this change.”

Twice as many U.S. postal facilities have both delivery and retail operations than have only retail operations, the report says. By contrast, private delivery companies and the best foreign postal services put delivery operations in commercial areas near major transportation hubs and retail operations close to where customers live and work.

Retail and delivery have been coupled in U.S. post offices for 150 years, the report says, but that model no longer makes sense in densely populated areas, according to the report.

“Carriers once spent more than half of their day manually sorting mail at the local carrier office before delivering it, but now devote slightly more than two hours per day to this function.”

“With carriers spending less time in the office, more mail can be delivered by each carrier and there is less need for letter carriers in each facility. With fewer carriers and the removal of local sorting equipment, there is idle floor space in facilities and less need for carrier vehicle parking.”

“The Postal Service could consolidate two nearby postal facilities into a single carrier-only facility and relocate it to a lower-cost facility with better connections to transportation links. This would produce savings by reducing both facility and transportation costs and by designing a space geared specifically toward efficient delivery operations.”

Wednesday, September 21, 2011

The recent bankruptcy court filings by NewPage have been blessings for some and curses for others. Here's a look at the scorecard two weeks after the big U.S. paper company went Chapter 11:

LOSERSLoser #1)Port Hawkesbury employees: NewPage has basically deep-sixed its money-losing Canadian mill, walking away from severance obligations and an underfunded pension plan, not using any of its debtor-in-possession funds to keep the mill running, and leaving many suppliers holding the bag. NewPage has put the mill up for sale but also revealed that it loses $4 million per month on the operation. Unless the muscle-bound Canadian dollar suddenly goes into the tank, a new owner won’t be able to make a go of the mill unless it can avoid NewPage’s pension obligations, reduce labor costs, and perhaps keep part of the operation (two paper machines and a pulp mill) idle.

Loser #2) Nova Scotia: It’s not just the mill’s employees who are suffering; the whole province seems to be getting sucked into the Port Hawkesbury vortex. The provincial government is shelling out $15 million to prop up logging operations that are getting stiffed by NewPage, the power company (owed nearly $10 million) says the loss of such a big customer will force it to raise rates for everyone else, and rail service to part of the province may no longer be viable.

Loser #4) Bondholders: Owners of the junkiest of NewPage bonds will probably receive nothing, and even owners of more senior bonds who expected to come out OK might have to accept some equity in a restructured NewPage in lieu of cash.

Loser #5) Suppliers: At least 25 suppliers of such items as chemicals, energy, and timber to the American arm of NewPage got stuck holding more than $1 million each in accounts receivable when the company went Chapter 11. Their prospects are better than those that supplied Port Hawkesbury, but most are unlikely to receive full compensation.

Loser #6) Cerberus: The folks who brought us the Chrysler and GMAC bankruptcies can now add another turkey to their resumes. The Chapter 11 filing wipes out the big hedge fund's stake in NewPage.Cerberus now seems to be moving more toward simply investing in companies rather than trying to buy and run them.

Loser #7) StoraEnso: With NewPage defaulting on the lease of one of its Port Hawkesbury paper machines, StoraEnso is taking a $180 million hit because it is the guarantor of the lease. Stora had already written off its 19.9% equity stake in NewPage, which was a holdover from the sale of Stora's North American assets to NewPage.

WINNERSWinner #1) Duluth employees: All of NewPage’s U.S. mills will probably continue running as long as the company is in bankruptcy court. (After three years of writing about ink-on-paper industries, I've seen this movie before. Can you say Tribune, Source Interlink, Quebecor World, AbitibiBowater, White Birch, etc.?) But the future looks especially bright for Duluth, the only NewPage mill besides Port Hawkesbury that can make supercalendered paper.

Winner #2) UPM: The Port Hawkesbury shutdown makes UPM’s recent purchase of the Madison, Maine mill look like a winner because of higher prices and a tight market for SCA paper. Although NewPage’s travails may cause investors to get jittery about other highly leveraged paper companies (which may be why Verso's stock price is down a bit), Finnish giant UPM seems to have the size, strength, and diversification to ride out the storm and to profit from NewPage's weakness.

Winner #3) The Katahdin region of Maine: Ever since the one-machine Millinocket, Maine supercalendered mill closed three years ago, there have been various attempts to reopen it that eventually petered out. But the latest investment plan already seemed to have legs before getting a shot in the arm from Port Hawkesbury's demise. Like Port Hawkesbury, Millinocket has one of the few machines capable of making an SCA for offset printing that rivals the quality and printability of more expensive coated groundwood papers.

Winner #4) Lawyers: Because NewPage filed for Chapter 11 without a “prepackaged” restructuring plan, a passel of lawyers will be kept busy for months sorting through the claims and interests of various creditors. Remember, the first rule of bankruptcy law is that, regardless of who else gets stiffed, the lawyers always get paid.

Tuesday, September 20, 2011

The Obama Administration proposed above-inflation increases in postage rates Monday, just a week after the Postal Service indicated it had backed off of just such a rate hike for fear of hurting the printing industry.

The President released a deficit-reduction plan that would "permit USPS to seek the modest one-time increase in postage rates it proposed a year ago."

A week earlier, Deputy Postmaster General Ron Stroman explained in an interview why the Postal Service had decided not to pursue such an "exigent" rate increase: "One of the things we have seen in ongoing discussions with the print industry is that the industry itself is functioning with very close profit margins. We have been very concerned that we not raise prices too high because you just drive people out of the business."

The USPS proposal a year ago, which was rejected by the Postal Regulatory Commission, had average rate hikes of 5.8% for the market-dominant classes of mail. But for Periodicals mailers the increases would have been in the 8% to 9% range.

The president's plan would also "give USPS the ability to better align the costs of postage with the costs of mail delivery while still operating within the current price cap." That may refer to postal executives' desire to impose the highest rate hikes on products on which USPS allegedly loses money, such as Standard flats (catalogs) and Periodicals mail.

The president's plan would also "reduce USPS operating costs by giving USPS authority, which it has said it will exercise, to reduce mail delivery from six days to five days." That's an about face on Saturday delivery: Just seven months earlier, Obama released a budget proposal that included the usual language about requiring six days of delivery and banning the closing of small post offices.

Friday, September 16, 2011

The network optimization plan announced yesterday by the Postal Service would apparently require the relocation or shutdown of some of the football-field sized Flats Sequencing System machines.

The vast majority of the 47 processing centers that operate the huge machines would be spared the ax. In fact, more than half of the FSS facilities would take on the sortation of mail from other buildings that would be closed. The consolidation plan would apparently result in a higher percentage of flat mail being sorted by FSS than occurs today.

But five FSS centers with a total of nine machines are on the list being considered for closure. Mail processing now done in Dallas; Van Nuys, California; and Los Angeles (Peck Annex) would be moved to nearby facilities that do not currently have FSS machines. (The original version of this article included Orlando, but the facility there that is on the study list is not the one with FSS machines.)

Work now done in Stamford, Connecticut and Fox Valley, Illinois would be consolidated into nearby centers that are already operating FSS machines. Also, a study of whether to consolidate the work now done at three Massachusetts locations into one includes two facilities that each have three FSS machines -- Middlesex-Essex and Northwest Boston.

The network optimization plan would close more than half of the 487 facilities that now process mail. But facilities with FSS machines tend to be large operations in major metropolitan areas, making them more likely to gain work from consolidation than to be closed.

FSS was supposed to revolutionize the handling of such flat mail as catalogs and magazines, which have traditionally involved much manual handling. The last of the 100 Phase I machines was turned on this past summer. It seems unlikely that any of the machines would be idled, but moving them would be no small feat.

The machines have enabled the Postal Service to eliminate thousands of carrier routes, but with the declining volume of flat mail it's not clear whether the $1.4 billion investment was worthwhile for USPS. For mailers, FSS means mail has to arrive at a sorting facility earlier in the day to receive next-day delivery. (See Special Mail Processing of 'Hot' Publications To End Friday.)

Also on the chopping block is the processing and distribution center in Lancaster, PA, which was supposed to be the test site this summer for a smaller footprint version of the FSS, nicknamed “FSS Lite”. It’s not clear whether that test has gone forward. In fact, with so many small and medium-sized processing centers being targeted for closure, it’s not even clear whether FSS Lite or FSS Phase II will ever be needed.

1)Hamstringing its finances: "The postal service faces unusual limits on its ability to manage costs, such as an obligation imposed by a 2006 law to 'prefund' a large portion of its retiree healthcare plan, instead of a more typical pay-as-you-go arrangement." Newman doesn't mention that the prefunding is an accounting trick used to understate the size of the federal budget deficit.

2) Making it obsolete: "Congress has ... micromanaged the postal service through a strict set of rules governing what it can and can't do while fulfilling its mandate of universal mail service."

3) Waiting until disaster is near: "The USPS has been seeking sounder finances and greater independence for several years, yet Congress has sat on its hands to the point that default seems likely and insolvency is even possible."

Newman concludes that postal reform "won't happen unless Congress relinquishes its own prerogative to interfere. Don't stand by the mailbox waiting for deliverance."

Other recent articles about the Postal Service's financial problems and cost-cutting efforts:

Monday, September 12, 2011

U.S. Postal Service executives are having "intense discussions" with the Obama Administration about the agency's finances, USPS's #2 man said in a videotaped interview published today.

"We've also been in pretty close discussions with them over the last month," Deputy Postmaster General Ron Stroman told MyPrintResource.com.

It just so happens that the Postal Service revealed its "workforce optimization" plan, including cuts of 220,000 career employees and rescinding of no-layoff clauses in union contracts, exactly a month ago. (See Donahoe's Downsizing Plan for USPS Yields Huge PR Coup for more on how the proposal has drawn attention to USPS's financial plight.) The White House revealed last week that it is finally developing its own plan to prevent USPS from becoming insolvent.

"We are in the process of having intense discussions now with the Administration about what the content of that plan will be," Stroman said during the 11-minute interview from the floor of Graph Expo, a major printing trade show. Several meetings with the Administration are scheduled for this week, he added.

Other highlights of the interview included:

Ending the Medicare subsidy: "We are the second biggest payer into Medicare and yet our retirees don’t use Medicare. They use the existing federal government retirement healthcare system. We are not reaping any benefits" from the Medicare payments. USPS wants it retirees to rely mostly on Medicare, with "a postal healthcare system as a backstop."

More post-office closure studies: Once it decides on the fate of about 3,700 underperforming post offices, USPS will begin studying whether to close another 4,000 post offices.

Lower costs, better service: By shutting thousands of post offices and providing more services via privately owned stores, the Postal Service can both save money and improve customer access. "Our customers want access to postal products on a seven-day-a-week, 24-hour basis." It will provide that through "village post offices" in retail stores. "We have a tremendous relationship with Office Depot" and are negotiating deals with other major retailers.

On price increases: "One of the things we have seen in ongoing discussions with the print industry is that the industry itself is functioning with very close profit margins. We have been very concerned that we not raise prices too high because you just drive people out of the business," which ends up hurting the Postal Service.

Sunday, September 11, 2011

The past week capped off an astounding publicity coup for the U.S. Postal Service, which is not usually known for its adroit public relations.

Years of conferences, letter writing, study reports, and publicity campaigns by mailers, postal unions, and postal management had largely failed to draw much attention to USPS’s financial plight – or to Congress’ role in causing that plight.

The key was a bit of Reality Therapy, in the form of postal executives spelling out what they would have to do to keep the Postal Service solvent in light of Congressional policies.

It started with a small dose of reality in late July when USPS announced a list of 3,700 underperforming post offices being considered for closure. The small post offices represent less than 1% of USPS’s budget, and their closure would not be as momentous as recent consolidations of processing and distribution centers.

The news media and general public, however, know little of P&DCs, but everyone knows what a post office is. Post office closings, along with the Postal Service's financial problems, became a hot topic-- with some articles even mentioning that Congress’ failure to yield on USPS’ pension and benefit overfunding as a major culprit. The timing was perfect: After the debt-ceiling debacle, the public didn’t have a hard time believing that Congress was to blame for much of USPS’s trouble.

Then the big dose came last month when Postmaster General Pat Donahoe announced his radical transformation plan, which called for laying off an estimated 120,000 postal workers and closing more than 300 P&DCs over the next four years. The prospect of having to rescind no-layoff clauses in union contracts and putting so many postal employees out of work got Congress' attention.

The news-media pack started smelling a juicy story. It couldn’t resist the opportunity for multiple sound bites from a Congressional hearing this past Tuesday.

“We have NEVER seen this many cameras for a #Postal hearing,” Washington Post reporter Ed O’Keefe tweeted a few minutes before the hearing began.

Despite the praise from mailer groups, Donahoe’s plan is deeply flawed. For example, smoothly transition from more than 500 P&DCs to fewer than 200 in only a year? Not likely.

But the proposal has succeeded in drawing attention to what Not-In-My-District politics, Congressional accounting games, and White House inaction are doing to an organization that touches every American without spending taxpayer money. Perhaps from all this notoriety and discussion, real solutions can emerge.

Wednesday, September 7, 2011

NewPage announced today it has filed for Chapter 11 bankruptcy protection, will keep its U.S. mills operating, and is seeking a buyer for its Canadian mill.

North America's largest maker of magazine-quality paper says it has $600 million from J.P. Morgan in "debtor in possession" financing that will enable it to continue operating while it tries to restructure its approximately $4 billion in debt and other liabilities.

The company was already in the process of putting its Port Hawkesbury, Nova Scotia mill on indefinite shutdown. Today's announcement says the company will "continue a 'hot idle' at the mill and preserve the value of its assets while it continues discussions with potential buyers."

The company's bankruptcy court filing today blames NewPage's problems on declining demand for paper in North America, "foreign imports from Europe and Asia," "the rising cost of raw materials", and the company's "relatively high level of structured debt". The filing notes that NewPage has been able to generate positive EBITDA (operating cash flow), but that money is insufficient to repay its huge debt load.